Affordable Care Act’s Reporting Requirements And Employer Mandate Postponed Until 2015; New IRS Guidance Released

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On July 2 the Obama Administration announced delays of the Patient Protection and Affordable Care Act’s (“ACA”) mandatory employer and insurer reporting requirements, and the requirement that all but the smallest employers offer medical coverage to their employees or pay a fine known as the “shared responsibility” payments.

Additionally, on July 5, the Administration changed the requirements regarding the process by which state online insurance marketplaces will verify income and eligible health coverage status for those applying for subsidized coverage.

Reporting Requirements and Shared Responsibility Payments under ACA

Under ACA’s “shared responsibility” payment provisions, employers with 50 or more fulltime employees (including fulltime equivalents) must offer health care coverage to all employees who work an average of 30 hours per week or more in a month, or pay penalties. This requirement is commonly referred to as the “employer mandate.”

ACA also imposes new federal tax reporting requirements under Internal Revenue Code sections 6055 and 6056 (added by ACA sections 1502(a) and 1514(a), respectively) on large self-insured employers (i.e., employers with a combination of 50 or more fulltime employees and fulltime equivalents).

Citing the complexity of reporting requirements by insurers and employers, the Administration announced that these reporting requirements, which were originally scheduled to take effect January 1, 2014, are now delayed until 2015. Additionally, the employer mandate will be delayed until 2015 since the reporting requirements delay will make it impractical to determine which employers owe shared responsibility payments for 2014.

website posting by Mark J. Mazur, assistant secretary for tax policy at the U.S. Department of the Treasury, indicates that the delay "is designed to meet two goals. First, it will allow us to consider ways to simplify the new reporting requirements consistent with the law. Second, it will provide time to adapt health coverage and reporting systems while employers are moving toward making health coverage affordable and accessible for their employees."

Additionally, the Administration has decided to roll back requirements for new state online insurance marketplaces to verify the income and health coverage status of people who apply for subsidized coverage. The regulations were contained in a 606-page rule that the Health and Human Services Department published on July 5, 2013.

State exchanges now have until 2015 to begin checking an applicant’s employer insurance status. The delay also allows for random income eligibility checks during the verification process, instead of comprehensive checks:

“For income verification, for the first year of operations, we are providing (state and federal) exchanges with temporarily expanded discretion to accept an attestation of projected annual household income without further verification.”

Marketplaces to be operated by the federal government in 34 states will still make random checks to verify applicant insurance status in 2014.

Individuals caught lying about their personal information could face a penalty of up to $25,000 and have to pay back the subsidies on their next filing.

Impact of Delay

On July 9, IRS released Notice 2013-45, which provides formal guidance describing transition relief in a question-and-answer format. The guidance addresses: (1) when rules will be published regarding Code Section 6055 and Code Section 6056 information reporting; as well as how these provisions will apply to 2014; (2) what the 2014 transition relief for Code Sec. 6056 information reporting means for application of the employer shared responsibility provisions for 2014; and (3) whether there is an effect on employees’ access to the health insurance premium tax credit.

Significantly, transition relief is limited to the information reporting requirements and employer shared responsibility payments. It is not intended to delay the “individual responsibility” payment under Code section 5000A, nor any other provision of the ACA.

Insurance exchanges are still scheduled to begin open enrollment on October 1, 2013. In order to receive subsidized insurance coverage, those enrolling in the exchanges must be earning 400 percent or less of the poverty line and not be receiving specified levels of coverage through their employer.

The delay will be welcome news for employers that have struggled with the complexities of the ACA's myriad regulations. It will give them an additional year to work with their legal counsel and benefits experts to decide how to address ACA and its potential penalties for the failure to offer coverage, or for offering unaffordable coverage, to full-time employees.

While the reporting requirements do not kick in until 2015, Administration officials said they still strongly encourage employers to voluntarily report this information in 2014, and to maintain or expand access to health care coverage.